Top 10 tips to reduce the cost of IP Litigation

During the ECTA conference this year, one of the recurring themes was that the UK is an expensive jurisdiction to litigate.

However, the Government has introduced changes to make access to the courts more affordable.

Practitioners will often explain that one of the major advantages of the court system in England & Wales is that it encourages the parties to resolve their differences much earlier in the process and this early resolution will save on costs. Statistics from the Courts revealed that between April to June 2013 only 3% to 3.5% of all claims issued proceed to trial.

1. Avoiding disputes

Stories often circulate about one company launching a product or brand and then receiving a cease and desist letter from a third party. Best practice is to ensure that appropriate availability searches are conducted to determine if a third party has any earlier conflicting right. For trade marks, the search is relatively straightforward and inexpensive, but for patents and designs it is more involved.

Such searches are worthwhile not only for highlighting any potential obstacles to the use of a particular brand name or invention but also to enable the company to navigate around them.

Another area of dispute relates to ownership of IP rights. For example, Dr Martens commissioned a third party to produce a new Dr Martens logo, but did not obtain an assignment of the logo. The designer assigned the rights to a competitor and Dr Martens was forced to fight the case all the way to the Court of Appeal. Obviously, the dispute and the associated legal expense could all have been avoided had the right contractual provisions been put in place at the outset.

It is therefore advisable for someone to have responsibility for managing a companie’s IP and ensuring that appropriate action is taken to reduce the risk of disputes.

2. Securing comprehensive rights

One of the most common problems which weaken a party’s position in litigation is not securing or maintaining appropriate IP rights. If such rights are not secured, disputes will take longer to resolve and cost more.

The obvious example is a company relying on unregistered rights such as passing off and unregistered design rights rather than the equivalent registered rights. For instance, if a company does not register a design right and it becomes aware that a third party is producing a replica product, it will have to rely on the UK or Community unregistered design right (assuming it qualifies). In such a case, the company would have to prove when the right was created and that the design was copied. This may be quite a task and would not need to be done in the case of a registered design right.

3. Enforcing rights

Right holders who have deep pockets and aggressively enforce their rights will, in general, be able to secure earlier resolutions of cases. The reason for this is obvious – third parties will be more reluctant to robustly defend such actions because the right holder has a track record of pursuing cases to trial.

4. Shop around

The UK is blessed with many specialist IP practitioners and firms.

Hourly rates for qualified solicitors vary considerably throughout the UK, ranging from £150 to £600 depending on the seniority of the person and his/her location in the country. Firms outside London are typically much less costly than those in London.

Right holders should not be shy to ask firms (and barristers) for fixed or capped fees.

5. Funding

If the cost of a case is too high, there are a wide range of funding and insurance options available.

If a company has a strong case (60% to 70% or higher) and the likely damages award is substantial, it may be possible to secure third party funding. Such funding has the advantage of allowing access to justice for parties which would otherwise not be able to fund a case.

6. Effective preparation and developing a strategy

Before litigating, it is best for the right holder to be prepared and to know exactly what it is getting itself into and what it wishes to achieve. The objective should be assessed continually throughout the case and measured against the costs being incurred and to be incurred going forward. Often right holders embark on litigation without effective preparation and rapidly find themselves on the back foot. Without effective preparation, the merits of the case may shift during the process to such an extent that, had the right holder been aware of its position from the start, it would not have taken action.

It is best to invest in the case at the outset to determine the strengths and weaknesses of any claims. Often this will involve investigations into the opponent’s use of the relevant IP (when it first started using it and how), background information on the opponent (e.g. size and financial strength) and obtaining all relevant information from the right holder (e.g. documents relating to the creation and exploitation of the relevant IP and any correspondence between the parties). In addition, it is advisable to obtain all necessary information from the opponent through the exchange of pre-action letters. If necessary, pre-action disclosure applications should be made.

More often than not, it is advisable to engage a barrister early in the process to ensure that the case is prepared in the right way.

7. Select forum

Parties have several different forums in which to bring an IP dispute including the High Court (such as the Royal Courts of Justice), Intellectual Property Enterprise Court (“IPEC”) (formally the Patents County Court) and the Comptroller at the Intellectual Property Office (for certain disputes).

For IP litigation, claims are usually brought in the High Court or the IPEC. The High Court is the traditional forum for such litigation and can be very expensive. Legal fees typically range between £250,000 and £750,000 if the case proceeds to trial (although some patent cases will cost far more). In contrast, the IPEC has a much more streamlined procedure resulting in substantial cost savings.

The main features of the IPEC are that: (a) proceedings are front loaded and the parties are required to include in their statements of case all the facts and arguments they intend to rely on; (b) the parties cannot add any further evidence without the express approval of the Court – which means that disclosure and witness statements are limited compared to the High Court; (c) the trial period is limited; (d) costs are much lower because many of the features of the traditional adversarial model are limited; and (e) any potential cost award is limited to an overall cap of £50,000 and in practice will usually be less than this. This system is therefore much closer to the inquisitorial model operated in Europe and the overall costs are significantly less than if the case was brought in the High Court, typically ranging from £50,000 to £150,000 to bring a case to trial. The IPEC has proven to be very popular with the number of cases being heard as follows: 102 in 2009/10, 157 in 2011 and 202 in 2012.

Further, the IPEC has introduced a Small Claims Track for claims up to a value of £10,000. It is specifically designed for litigants in person and hears disputes relating to copyright, trade marks, passing off and unregistered design rights. Disputes relating to registered design rights or patents should be heard before the High Court or the IPEC. Interim remedies are not available in the Small Claims Track so it will not be appropriate for parties seeking interim injunctions, search and seizure orders or freezing orders. However, final injunctions can be granted in addition to damages or an account of profits.

An alternative to the court process is a procedure available through the UK Intellectual Property Office (“IPO”), by which the Comptroller may give an opinion on the infringement and/or validity of a patent. It is more affordable than the other options, usually costing between £5,000 to £10,000 in a typical case. However, it may take the Comptroller in the region of 3 months to provide the opinion and, even then, it is not binding on the parties. In practice, opinions are infrequently sought from the IPO for this reason with only 17 requested in 2013.

8. Putting forward offers of settlement

The courts encourage the parties to try to negotiate settlement and have introduced several mechanisms to do so.

One particular mechanism encourages the parties to propose settlement terms either by way of a without prejudice offer or a Part 36 offer. Such offers can be made at any time, either before or after court proceedings have commenced. If a Part 36 offer is made correctly, various consequences will follow if the case proceeds to trial. For instance, if the defendant makes a Part 36 offer and the claimant rejects it and wins at trial but fails to beat the defendant’s offer, the claimant is likely to be ordered to pay the defendant’s costs on the standard basis (around 60% to 70%) together with interest. In contrast, if the claimant makes a Part 36 offer and wins at Court and beats its own offer, it can be awarded costs from 21 days after the date the offer was made on an indemnity basis (around 90%), additional interest of up to 10% on both damages and costs and a further bonus of 10% of the damages (up to £500,000 and then 5% of the next £500,000 with an overall cap of £75,000).

Making an offer of this sort is not considered a sign of weakness and can actually represent an aggressive move which exposes the other party to significant cost consequences and puts pressure on it to settle early. A right holder should consider making such an offer as soon as it is confident about the merits of its case.

In addition, or as an alternative, parties should consider mediation as an option to encourage settlement. If a party refuses to mediate, the Court may make an adverse cost award against that party. Mediation is an entirely voluntary process and involves a neutral person actively assisting the parties to resolve the dispute. The process is confidential and the parties can withdraw at any time. Studies suggest that upward of 70% to 80% of cases that go to mediation are resolved. Even if mediation does not resolve the case it can help narrow the issues in dispute and allow the parties to determine the strengths and weaknesses of their case.

9. Case Management

A party should ensure as far as possible that the other party is complying with any directions and is not unnecessarily delaying the process. If a party is not complying with directions, the judiciary are prepared to take a more robust and pro-active approach to case management. One of the Jackson recommendations was that the courts should be less tolerant of unjustified delays and breaches of court orders. This was addressed in the recent case of Fred Perry (Holdings) Ltd v Brands Plaza Trading Ltd, in which Lord Justice Jackson said that “litigants who substantially disregard Court orders or requirements of the CPR will receive significantly less indulgence than they have to date”.

It is also advisable to try to limit the issues in a case and take advantage of any processes that are likely to reduce costs. For instance, the parties could agree to limit disclosure to certain sets of documents and developments in software have allowed parties to reduce the costs of this process by electronically sifting through potential disclosure documents for relevant search terms.

Judges are encouraged to actively manage cases and they are showing an increasing willingness to comment on the merits of the case at case management conferences or in preliminary hearings. The parties should consider preparing for such hearings effectively so that the judge is in a good position to make such comments. In two recent High Court Intellectual Property cases in which Clarke Willmott has been involved, the judges made comments on the relative weakness of the other parties’ cases with the consequence that the cases settled shortly thereafter. Furthermore, in a talk given by a number of eminent IP practitioners and judges (including Sir Robin Jacob, the Honourable Mr Justice Birss and Mr Allan James, Senior Hearing Officer and Head of the UK Trade Mark Tribunal) in October 2013, the panel confirmed that where it was apparent that the merits of the case strongly favoured one party, they were inclined to make the parties aware of their opinion. Such comments are likely to encourage the parties to settle.

10. Determine the case without a trial

In appropriate cases it may not be necessary to go to a full trial if the case can be determined by default judgment (where no defence has been filed), strike out (where there is no case to answer) or summary judgment (where there is no realistic prospect of success). If such relief can be obtained, it will substantially reduce costs. Such processes are likely to be much less expensive than trial, with the cost typically ranging from between £5,000 to £35,000.

It is sometimes worth applying for an interim injunction because if the application is successful, it will often lead to the parties settling the case subsequently and avoiding the cost of proceeding to a full trial. For instance, if a claimant obtains an interim injunction requiring a defendant to cease using a particular brand, the defendant is likely to want to resolve the dispute as it will be less inclined to fight the case in the long term as it will not want to carry out a further rebranding exercise even if it wins at trial and the injunction is lifted.

Conclusion

Whilst it is fair to say that the court procedure in England & Wales is more expensive than equivalent systems around Europe, it does not need to be as expensive as many people believe. The Government has introduced a number of measures and procedures over the last few years to make litigation more affordable and the judiciary are keen to manage cases pro-actively to ensure that costs are kept under control.

The best advice that one can give a potential litigant is to ensure that it has prepared its case fully before commencing litigation and it is clear on the strengths and weaknesses of its case, where it wants to bring the case and what it wants to achieve. As the system actively encourages settlement, any litigation brought in the England & Wales is very likely to be resolved well before the parties are exposed to the significant costs of preparing for trial.